Business ethics

From Academic Kids


General definition

Business ethics is the branch of ethics that examines ethical rules and principles within a commercial context; the various moral or ethical problems that can arise in a business setting; and any special duties or obligations that apply to persons who are engaged in commerce. Those who are interested in business ethics examine various kinds of business activities and ask, "Is the conduct ethically right or wrong?"

Business ethics is a form of applied ethics, a branch of philosophy. As such, it takes the ethical concepts and principles developed at a more theoretical, philosophical level, and applies them to specific business situations. Generally speaking, business ethics is a normative discipline, whereby particular ethical standards are assumed and then applied. It makes specific judgements about what is right or wrong, which is to say, it makes claims about what ought to be done or what ought not to be done. While there are some exceptions, business ethicists are usually less concerned with the foundations of ethics (metaethics), or with justifying the most basic ethical principles, and are more concerned with practical problems and applications, and any specific duties that might apply to business relationships.

Related disciplines

Business ethics isn't identical to the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible -- those who dispute that premise, such as libertarian socialists, do so by definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any, are the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise.

Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.

Typical issues in business ethics

While hardly exhaustive, some typical issues addressed in business ethics include:

Conflicting interests

Business ethics can be examined from various perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.

Some ethical issues and approaches

Philosophers and others disagree about the purpose of a business in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. The economist Milton Friedman is a leading proponent of this view.

Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholderes, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. They would say that stakeholders have certain rights with regard to how the business operates, and some would even suggest that this even includes rights of governance.

Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s. Philosophers Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-princples formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice.

Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits. On this view, the competitive system fosters a downward ethical spiral.

Rushworth Kidder developed a facinating way to address ethical conflicts. He calls it a "trilemma". Instead of feeling stuck in a choice between violating your ethics and doing something painful but ethical, he suggests exploring if there is a third, unexplored option.

Corporate ethics policies

Many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioral requirements (typically called corporate ethics codes). They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct.

Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment.

Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company's legal liability, or to curry public favor by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly.

Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.

To be successful, most ethicists would suggest that an ethics policy should be:

  • Given the unequivocal support of top management, by both word and by example.
  • Explained in writing and orally, with periodic reinforcement.
  • Doable....something empoloyees can both understand and perform.
  • Monitored by top management, with routine inspections for compliance and improvement.
  • Backed up by clearly stated consequences in the case of disobedience.

Ethics officers

Since 2002, many companies have appointed ethics officers. They often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company's activities, making recommendations regarding the company's ethical policies, and dissiminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the United States, which was enacted in reaction to a number of well-publicized corporate scandals. A related trend is the introduction of risk assessment officers that monitor how shareholders' investments might be affected by the company's decisions.

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect the efficacy to be minimal, at least, over the short term. In part, this is because ethical business practices result from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually eminates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behaviour: a more systemic programme with consistent support from general management will be necessary.

Obviously, the foundation for ethical behavior goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual's early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole.

Religious views on business ethics

Jewish business ethics

Judaism has an extensive literature and legal code on the accumulation and use of wealth. The basis of these laws is the Torah, where there are more rules about the kashrut (fitness) of one's money than about the kashrut of one's food (see 613 Mitzvot). These laws are developed and expanded upon in the Mishnah and the Talmud. The laws are developed formally in all the major codes of Jewish law. There are sections on business ethics in the Mishneh Torah (12th century) and the Shulkhan Arukh (17th century); a wide array of topics on business ethics are discussed in the responsa literature.

The literature also addresses the ethical dimension. Rabbi Yisrael Lipkin Salanter (19th century), founder of the Mussar movement in Eastern European, taught that just as one checks carefully to make sure their food is kosher, so too should one check to see if their money is earned in a kosher fashion (Chofetz Chaim, Sfat Tamim, chapter 5). The teachings go much further, there is a widely quoted tradition (see for e.g. Kitzur Shulkhan Arukh 62:1) that in one's judgement in the next world, the first question asked is: "were you honest in business?"

Christian business ethics

Christianity has an extensive literature on the accumulation and use of wealth. The basis of this theology is the Old Testament and the New Testament.

For example, Jesus asked his disciplies, "If you lend to those from whom you hope to receive, what credit is that to you?" Luke 6:34. Although this may be a general injunction to disinterested benevolence, it has also been read as a condemnation of interest or usury. Jesus referenced this especially when one lends to another believer. As a christian, with an eternal mindset, ultimately God is our rewarder and lending to a fellow believer should be left to God to reward over collecting nominal interest.

Muslim business ethics

Islam has an extensive literature and legal code on the accumulation and use of wealth. The basis of these laws is the Qur'an, and they are amplified in the Hadith. Muslim wealth ethics include avoidance of the exploitation of people in need through lending them money at interest (riba).

See also:


General references

Moral Issues in Business, Vincent E. Barry, Belmont, CA: Wadsworth, 1986
Essays on Ethics in Business and the Professions, Jack N. Behrman, Englewood Cliffs, NJ: Prentice Hall, 1988
Business Ethics, A Kantian Perspective, Norman E. Bowie, Blackwell, 1999.
Ethical Dilemmas in the Modern Corporation Gerald F. Cavanagh, Prentice-Hall, 1988
Ethics and the Management of Computer Technology: Proceedings of the Fourth National Conference on Business Ethics National Conference on Business Ethics (4th: 1981: Bentley College) Cambridge, MA: Oelgeschlager, Gunn & Hain, 1981
Business Ethics, William H. Shaw, Wadsworth Publishing, 1992.
The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business, Jeffrey L. Seglin, Spiro Press, 2003
Above the Bottom Line: An Introduction to Business Ethics Robert C. Solomon, Harcourt Brace Jovanovich, 1983

Jewish references

You Shall Strengthen Them: A Rabbinic Letter on the Poor Elliot N. Dorff with Lee Paskind, The Rabbinical Assembly, NY
Free Enterprise and Jewish Law: Aspects of Jewish Business Ethics Aaron Levine, Ktav Publishing House, 1980
The Challenge of Wealth, Meir Tamari, Jason Aronson Inc., 1995
With All Your Possessions: Jewish Ethics and Economic Life, Meir Tamari, Free Press, 1987, ISBN 0029321506
Al Chet: Sins in the marketplace, Meir Tamari, Jason Aronson, 1986, ISBN 1568219067
Torah Guide for the Businessman, S. Wasschal, Philipp Feldheim Inc, 1990, ISBN 1583301399

Christian references

Biblical Business Ethics: Exploring Secular Ethical Values & Alternative Christian Approaches, David Bertch, Terry Martin, Dyna Martin, Works Press, 1994. ISBN 0963447238
Business By The Book: The Complete Guide Of Biblical Principles For The Workplace, Larry Burkett, Nelson Reference; Updated edition 1998, ISBN 0785271414
God is my CEO: Following God's Principles in a Bottom-Line World, Larry S. Julian, Adams Media Corporation, 2001, ISBN 1580624774
Full value: Cases in Christian business ethics O.F. Williams and J. W. Houck, San Francisco, CA: Harper & Row, 1978

Muslim references

Islamic Business Ethics Rafik Issa Beekun, The International Institute of Islamic Thought
Islam and the Economic Challenge M.Umer Chapra
The Problem With Interest Tarek El Diwany
Distributive Justice And Need Fulfilment in an Islamic Economy Munawar Iqbal, The Islamic Foundation, Leicester, U.K.
Islamic Commercial Law: An Analysis of Futures and Options Mohammad Hashim Kamali, 2000, ISBN 0-946621-80-2
Banking Without Interest Muhammad Nejatullah Siddiqide:Wirtschaftsethik

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